MIKHAIL PROKHOROV DOES A CROSSOVER DRIBBLE – WHY IS HE TRYING TO SELL THE BROOKLYN NETS?

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By John Helmer, Moscow

Mikhail Prokhorov thinks that his American basketball franchise, the Brooklyn (née New Jersey) Nets has grown eightfold in value in the five years since he acquired it for $223 million. For the time being, though, noone agrees with him. That’s to say there is no buyer at Prokhorov’s asking price of $1.7 billion. If Prokhorov drops his price to $1.2 billion, as some sports media reporters claim, there is still no buyer.

When Prokhorov bought the Nets – his stake is 80% — he told[1] Bloomberg: “There is only one way to go – up. I like to find cheap assets with problems. It gives me power.” Today, if he’s obliged to accept a deal at the current industry valuation of $780 million for the team, Prokhorov must count that he has spent an additional amount of more than $600 million in player purchases, loss cover, debt service, and luxury taxes, ending up with no profit at all. If up was power in 2010, is down impotence today?

So, is Prokhorov selling out of the US? Yesterday, according to his spokesman in Moscow, Prokhorov “will not comment on this subject, and he has not commented on it before for anyone.” This isn’t the buzzer. It’s just the beginning of the game, though basketball, this isn’t.

On Prokhorov’s profit-loss record and his score for delivering on his promises, Bloomberg and the New York sports media have been mesmerized by Prokhorov’s How-to-spend-it advertising. The Russian media have investigated his corporate performance more carefully to discover that what Prokhorov advertises in asset value, he often fails to realize or deliver. Here is the lossmaking record at Polyus Gold[2], Uralkali[3], Rusal[4], and Renaissance Capital[5].

Five hundred miles north of New York City, Prokhorov has been unable to persuade the Toronto stockmarket to buy shares of his Intergeo mining company at two attempts. At the third, he found a way of reversing into an already listed, if insolvent stock[6].

Prokhorov also appears to have failed to persuade the National Basketball Association (NBA), the professional league’s corporate authority, that it should allow him to change the legal domicile of his ownership of the Nets from the US to Russia. The impetus for that move was Prokhorov’s ambition to run for political office at home, and the 2013 Russian statute forbidding election candidates from holding foreign assets. Prokhorov called the asset prohibition a “trick”. This is how the publication of the Nets reported Prokhorov’s withdrawal from the Moscow mayoral race in September 2013[7].

Earlier this year, after receiving a Kremlin award for his support of the Sochi Olympic Games,

Prokhorov announced that “a Russian company will own the basketball club. This does not violate any NBA rules and I will bring it [under Russian jurisdiction] in accordance with Russian law.” The NBA responded negatively. “The Nets are owned by Mikhail Prokhorov through a U.S.-based company,” Mike Bass, an NBA spokesman, said[8]: “We have received no official application nor is there a process underway through our office to transfer the ownership of the Nets to another company.”

The NBA statement was issued almost a year after Prokhorov had opened negotiations with the NBA on the change of domicile. “Preliminary discussions with the NBA were held in spring, 2013,” Onexim Sports & Entertainment, Prokhorov’s US company, revealed on March 25, 2014[9]. “At that time, the League indicated its willingness to work with us in the event we needed to reregister the ownership vehicle of the Nets as a Russian entity to comply with the Russian law regarding candidates for political office. This is a long process which may or may not come to fruition and nothing is imminent. Of course, no steps in this direction could or would be taken without the full knowledge and approval of the NBA. ”

In reality, US sports reporters believe, there are US rules against foreign domicile for a professional sports team. There is also no precedent for the US sports leagues or the US courts to allow the change Prokhorov has been seeking[10]. Public skepticism[11] towards Prokhorov’s contributions to New York sports and to Brooklyn has grown as he attempted to extricate himself.

Selling the Nets, according to one theory of Prokhorov’s intention, followed his failure on the domicile issue. A second theory is that Prokhorov is trying to exit now — before the sale price of the Nets concession starts to tank.

When Prokhorov first bought the Nets, he promised to do whatever it would take to produce an NBA championship for the unsuccessful team. That included spending big money to buy players. One reported estimate is that between 2010 and 2012 Prokhorov had paid out $330 million for player contracts[12]. At first, Prokhorov said the Nets would win the championship within five years (2015); then three years (2015). “Every team has a grand plan,” he announced, “and we’re moving slowly, step by step, because it’s easy to make a strong team, but it’s very difficult to make a championship team. So we are on the right way and I’m expecting our championship within three years now.” The Nets general manager, Billy King, was more cautious. “He said five, so we’re down to three. To me, it’s a great goal. I’d rather him say that than say, ‘Hopefully we’re going to win a championship at some point.’ That’s the goal, and I look forward to the challenge.” A year later, King and Prokhorov had hired and fired three coaches[13].

At present, there is little optimism the Nets can end their losing streak[14]. “In Year 5 of the Mikhail Prokhorov regime,” reports EPSN[15], “which he openly hoped would deliver a championship in five years or less, Brooklyn just wants to hang on as a playoff team until it has cap space to play with in 2016. ‘Til then? Everything hinges on big comebacks by Brook Lopez and Deron Williams.”

For the NBA championship record since 1946, click here[16]. For the losing record of the Nets, click again[17].

Prokhorov’s team has acknowledged that last season it suffered a loss of $144 million. Why wait, Prokhorov may be calculating, for another year of outlays if the championship remains as out of reach as ever? At the start of this month, Prokhorov signalled[18] that he was looking to cut his losses, and sell part or all of his stake. Several transaction formulas were reported[19]. But the deal reports have stopped as abruptly as they appeared. The New York papers have concluded[20] either that Prokhorov had found no takers for his price, or that he wasn’t a serious seller[21] at all.

In Moscow there is much greater conviction that Prokhorov is trying to sell out of the US; and that the reason is the US government’s sanctions campaign to isolate and topple President Vladimir Putin. Other oligarch groups are also selling, or have already sold out; they include steelmakers Alexei Mordashov[22], Roman Abramovich[23], and pipemaker Dmitry Pumpyansky[24]. US asset-holders who aren’t feeling the same patriotic pinch include Anatoly Chubais and Mikhail Abyzov[25].

According to domestic calculations, some oligarchs have more sensitive problems than others in the way their capital is aligned with the country’s conflict with the US. Prokhorov’s problem with the Nets has been compounded by his political ambitions, and by his sister, Irina Prokhorova.

The director of the Prokhorov Foundation[26], she has also been the head of the Civic Platform, Prokhorov’s political party. In July she resigned from the party because she opposes Russian policy in Ukraine, particularly the accession of Crimea. Other party members believe it is suicidal for the party to take that line. In her resignation statement, Prokhorova said[27]: “this is an incredibly knotty situation, and I’m in the grips of a conflict between emotions and the sense of duty. I am unable to express my position openly because I’ll otherwise start contradicting the majority of the party members.”

Prokhorov has tried to say a good deal on the Ukraine problem[28], but he has carefully avoided saying a word about Crimea. His manifesto of April, published in Kommersant, can be read here[29].

Last week, Rifat Shaikhutdinov (right), the Civic Platform’s chief executive, said[30] there will be no split in the party over Crimea, and that Prokhorov is intending to resume his leadership. The sale of the Nets and other foreign assets, he said, are part of Prokhorov’s political comeback strategy. “In order to lead the party into the parliamentary election, Mikhail Prokorov must sort out the issue of his western assets. In line with the law, participation in political activity is impossible with foreign assets… We are the right [wing] party, but we are still patriotic towards the country and our people.”

Prokhorov is in an awkward spot, Shaikhutdinov concedes, because the prices of his assets are falling. “I know that a deal is close on the Brooklyn Nets basketball club. But for a number of assets, [the selloff] is not so fast, unfortunately.”

Prokhorov responded[31] to Shaikhutdinov with a blog comment last week. “Not without surprise do I read Rifat Shaikhutdinov’s interview to the Izvestia newspaper today. I didn’t know that reading my thoughts belongs to his duties at the post of chairman of the Civic Platform’s federal political committee. I am engaged in planning for the political future myself, and I will inform the public too, on my own.”